SHARE CAPITAL

SHARE CAPITAL

SHARES

  • Definition: A share is a unit of ownership representing an equal portion of a company’s capital.

  • Rights of Shareholders:

    • Claims on profits and losses of the company.

    • A person owning shares is termed a shareholder.

  • Legal Definition: Section 2(84) of the Companies Act, 2013 defines a share as a part of the share capital of a company, which includes stock.

NATURE OF SHARES

  • Characteristics:

    • Movable property that is transferable per the Articles of Association.

    • A definite part of the authorized share capital.

    • Serially numbered for identification.

  • Shareholder Rights:

    • Shareholders have rights to profits but not direct rights over company assets.

    • Types of Shares:

      • Preference shares

      • Equity shares

PREFERENCE SHARES

  • Definition: As per Explanation (ii) to section 42 of the Companies Act, 2013, preference shares provide holders with a preferential right over dividend payments and capital repayments during winding-up.

TYPES OF PREFERENCE SHARES

  • Categories:

    • Cumulative

    • Non-cumulative

    • Participating

    • Non-participating

    • Convertible

    • Non-convertible

    • Redeemable

    • Irredeemable

PROVISIONS RELATING TO REDEEMABLE PREFERENCE SHARES

  • Issuance: Redeemable preference shares can only be issued if authorized by the company's Articles of Association; only fully paid shares can be redeemed.

  • Redemption Conditions:

    • Can be redeemed from available profits or proceeds of a fresh issue of shares.

    • Must transfer sums equal to nominal share value to Capital Redemption Reserve upon redemption.

  • Registrar Notification: Redemption must be reported to the Registrar within 30 days.

EQUITY OR ORDINARY SHARES

  • Fund Holding: Equity share capital remains with the company until closure.

  • Voting Rights: Equity shareholders can vote and participate in management decisions.

  • Dividends: The rate depends on surplus availability, with no fixed dividend rate.

COMPARISON BETWEEM PREFERENECE AND EQUITY SHARES

  • Voting:

    • Equity shareholders possess voting rights.

    • Preference shareholders generally have voting rights on limited matters.

VARIATIONS OF SHAREHOLDERS' RIGHTS

(SEC 48)

  1. Rights can be varied with consent of 75% of the class holders or special resolution.

    • Conditions include provisions in articles or memorandum unless prohibited.

  2. If 10% of shares of a class do not consent, they may apply to the Tribunal for cancellation of changes within 21 days.

VOTING RIGHTS

  • General Meeting Participation: Equity shareholders can vote on resolutions; preference shareholders can vote on matters directly affecting their rights.

  • Voting Provisions: Preference shareholders can vote if dividends are unpaid for two years.

DIFFERENTIAL VOTING RIGHTS (SEC 43)

  • Definition: Differential voting rights allow equity shares to have distinct voting and dividend rights.

  • Conditions for issuing DVR:

    • Must be authorized in the Articles of Association.

    • Requires an ordinary resolution in a general meeting.

    • Must not exceed 26% of total shares.

    • Company must have a consistent track record for the last three years.

RAISING OF CAPITAL (ISSUE OF SHARES)

1. Public Issue:

  • Definition: Initial offers to the public through a prospectus for raising capital.

2. Private Placement:

  • Conditions for private placement defined under section 42, limiting offers to not more than 200 people in a financial year.

CONDITIONS FOR PRIVATE PLACEMENT

  • Must not exceed 200 people; no public announcements.

  • Payment through banking transactions only.

3. Allotment of Shares

  • Definition: Allotment is acceptance of share applications by the company, creating a binding contract.

  • Legal Compliance: Must follow companies act requirements and proper authority.

SHARE CERTIFICATE (SEC 46)

  • Definition: Issued evidence of owning shares, establishing title.

  • Requirements:

    • Must carry the company's common seal or signatures of directors.

    • Must include share details and holder information.

TIMELIMIT FOR SHARE CERTIFICATE DELIVERY

  • Required within 2 months from allotment or transfer.

DUPLICATE SHARE CERTIFICATE

  • Issued for lost, defaced, or destroyed certificates.

SHARE WARRANT

  • Defined as negotiable instruments allowing ownership rights to bearer.

TRANSFER OF SECURITIES (SEC 56)

  • Securities are movable property transferable as per company articles.

TRANSMISSION OF SECURITIES

  • Automatic transfer upon death or insolvency; differs from transfer.

DEBENTURE ISSUES

  • Definition: Debt securities evidencing a loan to the company.

INCREASE IN SHARE CAPITAL

  • Methods can include public offers, rights issues, or conversion of debentures into shares.

REDUCTION OF SHARE CAPITAL (SEC 66)

  • Provides conditions to reduce share capital legally.

BUY BACK OF SHARES

  • Definition: Company repurchasing its own shares.

  • Conditions: Requires shareholder approval and must adhere to regulations.

PROHIBITIONS ON BUY-BACK

  • Conditions under which companies cannot purchase their shares.

BOOK BUILDING

  • Process of generating and capturing demand for shares allowing market price discovery.